Foreclosures, and subsequent over-supply, ensue. This creates the downward pressure on housing prices and the erosion of implied wealth. The implied wealth - of $1 trillion+ of US citizens savings being eroded over such a short period of time creates means less spending and investing, resulting in pressure on banks, a reluctance to lend, non-availability of college loans, car loans, business loans, etc, and subsequently grinds the economy to a halt.
I can't believe how misleading the positive meida spin-doctors are. The US might go into a recession? Rubbish, it's already in one. How does a depression sound?
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And heres where we part ways. Do we have some financial issues? Yes... Is it a US implosion? Hell no. Credit is tighter yes, but its a correction to norm not the end of the world.. At least if the fed and the govt quits trying to fix the correction... Govt bailouts of the mortgage companies and the fed constantly pumping money into the economy may chage my mind shortly.
Unemployement- still near all time low
gdp per capita- still near all time high
Stock market and stocks- still making hella profit.
It aint the end of the world.. yet.